Michael Prieto charged with mail fraud, money laundering

Lawyers for Michael Prieto, who is charged with bilking financially distressed homeowners and lenders out of $13 million, said Tuesday his mortgage rescue company amounted to a "failed business model," not a criminal enterprise.

"My client was a bad businessman," defense attorney Jaye Rancourt told jurors in her opening statement Tuesday in federal court in Concord. "Being a bad businessman is not a crime."

Prosecutors said Prieto persuaded people who were having difficulty making their mortgage payments to turn their homes over to him, continue living in the homes and pay rent with the prospect of buying back the homes in two years.

Assistant U.S. Attorney Michael Gunnison told jurors Prieto paid others to buy the homes to mask his role as both the seller and buyer.

Gunnison said Prieto then remortgaged the homes -- sometimes at interest rates as high as 14 percent -- then defaulted on the loans.

"Mr. Prieto was the boss, the controller of all the money and the arranger of all the fraudulent transactions," Gunnison told jurors. He said Prieto left lenders, homeowners and the "straw" buyers he paid to purchase the homes "holding the bag."

"You will hear testimony from the straws who were the pawns in the scheme," Gunnison said. He said Pietro paid the straw buyers $5,000 per transaction and falsely assured them they would bear no responsibility for the mortgage payments.

Gunnison said Prieto, a former loan officer for Countrywide mortgage company, defrauded his employer by using Countrywide to underwrite the first three of dozens of transactions Prieto orchestrated between 2005 and 2008.

Rancourt told jurors that the distressed homeowners are looking for a scapegoat.

"When people get hurt and their homes go to foreclosure, they want someone to pay, someone to blame," Rancourt said.

She said homeowners were told upfront that their homes would be remortgaged and that those loans were not fraudulent.

"The evidence will show you there was a failed business model, and that isn't a crime," Rancourt said. She said the people prosecutors cast as straw purchasers were not straws at all, but "passive investors."

Rancourt told jurors Prieto paid the homeowners up to $50,000 each to help pay off credit card and other debts, then got stuck with the houses and mortgages when the market "tanked."

The first witness called by prosecutors was Sadie Ng of Quincy, Mass., a former partner of Prieto's who pleaded guilty in 2011 to mail fraud. She said Prieto set up and controlled about a dozen limited liability companies in furtherance of the scheme. She said she was the straw purchaser on the first few homes the partnership bought.

Prieto had been scheduled to plead guilty last month but changed his mind after arriving in court.

He was indicted on mail fraud and 10 counts of money laundering in 2012. The indictment states he used the proceeds from the scheme to pay personal expenses, including restaurant tabs and trips to Foxwoods Casino in Connecticut.

STRUGGLING HOMEOWNERS THEIR HOUSES. THE LAWYERS SAY -- HIS LAWYERS SAY IT WAS SIMPLY BAD BUSINESS. THE PROSECUTOR CLAIMED IT WAS AN ELABORATE SCHEME TO PREY UPON PEOPLE STRUGGLING TO KEEP THEIR HOMES. MICHAEL PREDO, SENIOR GOING THROUGH SECURITY IN FEDERAL COURT -- SEEING HERE GOING THROUGH SECURITY IN FEDERAL COURT IN CONCORD, IS TIED TO AN ALLEGED SCHEME TIED -- THAT AMOUNTED TO MILLIONS OF DOLLARS. THE PROSECUTION CLAIMS HE RAN A COMPANY THAT TARGETED DISTRESSED HOMEOWNERS, LOOKING IN THE PROPERTIES THROUGH FORECLOSURE NOTICES. THEY ENCOURAGED THE PEOPLE TO CALL OR MAIL THE PROMOTER, AND THEN SEND SALES PEOPLE TO BUY THE PROPERTY, ALLOWING THEM TO RENT THEIR FOR TWO YEARS WITH THE OPTION TO PURCHASE IT BACK. AND THEN THEY WOULD HIRE A STRAW BUYER TO GET A MUCH HIGHER LOAN, PAYING THEM $5,000 PER ACTION. AND THEN HE WOULD STRIP THE EQUITY FROM THE PROPERTY AND STOP PAYING THE MORTGAGE, LEAVING THE DISTRESSED HOMEOWNER WITH A BRAND THEY COULD NOT AFFORD AND ULTIMATELY RESULTING IN A LOSS OF THE PROPERTY. THE DEFENSE CLAIMS HE WAS A LEGITIMATE BUSINESS MAN WHO SET UP A COMPANY THAT EVENTUALLY